Economics: Unemployment and Unemployment Frictional Unemployment Essay

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Economics Revision Focus: 2004

AS Economics
Unemployment

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Unemployment

Revision Focus on Unemployment (AS)
AS Syllabus Requirements Employment and Unemployment Candidates should understand how employment and unemployment may be influenced by both aggregate demand and supply-side factors. They should be able to use a production possibility diagram to illustrate unemployed resources. They should understand that, at least in the short run, if the growth of aggregate demand is less than the underlying trend rate of growth of output unemployment is likely to occur. They should understand the concept of the ‘output gap’ and its significance for both inflation and unemployment. Definition of unemployment Officially, the unemployed are people who are registered as able, available and willing to work at the going wage rate but who cannot find work despite an active search for work. The Claimant Count measure of unemployment includes those people who are eligible to claim the Job Seeker's Allowance. Claimants who satisfy the criteria receive the JSA for six months before moving onto special employment measures. The Labour Force Survey covers those who have looked for work in the past month and are able to start work in the next two weeks. On average, the labour force survey measure has exceeded the claimant count by about 400,000 in recent years Since 1993 there has been a sustained fall in the number of people out of work. In May 2004, unemployment according to the claimant count measure was 951,000 – or 3.1% of the labour force. The labour force survey measure found unemployment to be 1.5 million of 5.1% of the labour force. On either measure, this is the lowest rate of unemployment in the UK for over twenty-five years. Our unemployment rate compares favourably with many other industrialised economies. Labour Force Survey Change on previous year 000s -281 -121 -54 Claimant Count Unemployment Level Change on previous year Rate 000s 000s % 2,290 -309 7.6 1,088 -160 3.6 933 -14 3.1

1995 2000 2003

Level 000s 2,470 1,633 1,485

Rate % 8.8 5.6 5.2

International unemployment rates (as a % of the labour force) Euro Zone 8.5 8.0 8.4 8.8 UK 5.6 4.9 5.2 5.0 USA 4.0 4.8 5.8 6.0 Japan 4.7 5.0 5.4 5.3 Germany 7.8 7.8 8.6 9.3 France 9.3 8.5 8.8 9.4

2000 2001 2002 2003

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Unemployment

Frictional unemployment is transitional unemployment due to people moving between jobs: For example, redundant workers or workers entering the labour market for the first time (such as university graduates) may take time to find appropriate jobs at wage rates they are prepared to accept. Many are unemployed for a short time whilst involved in job search. Imperfect information in the labour market may make frictional unemployment worse if the jobless are unaware of the available jobs. Some of the frictionally unemployed may opt not to accept jobs if they believe the tax and benefit system will reduce the net increase in income from taking paid work. When this happens there are disincentives for the unemployed to accept work. Structural Unemployment Structural unemployment occurs because of capital-labour substitution (which reduces the demand for labour) or when there is a long run decline in demand in an industry leading to a reduction in employment perhaps because of increasing international competition. Globalisation is a fact of life – and inevitably it leads to changes in the patterns of trade between countries over time.
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